NEOgas–Wealth Generation at It’s Finest
The NEO Network
This article today, and the content included has been on my mind for quite some time. As most of you know NEO is my number 1 crypto pick and has been since it was Anshares. A couple of days ago, I talked about NEO Smart Contracts 2.0 and compared it with Ethereums Turing Complete Smart Contracts and Bitcoins Non-Turing Complete Smart Contracts. Well in the NEO Ecosystem, there is this thing called GAS. From the NEO Whitepaper, NEOgas is the fuel token for the realization of NEO network resource control. What does resource control mean though?
Well the NEO network charges for the operation and storage of tokens and smart contracts, thereby creating economic incentives for bookkeepers and preventing the abuse of resources. Currently there are no transaction fees on the NEO Network. This is to support use, and development of the platform. Now Smart Contracts must have fees or there could be abuse of the system resources and bringing the system to a halt.
Here is a breakdown of the fees for system calls. We all knew that it costs 500 Gas to create a contract, but it also costs gas to get a block .2 NEOgas for that, get Validators costs .1 NEOgas, getasset .1 gas. There is also fees for system instructions which can see in this chart. Looks like you pay .1 NEOgas for checking a signature and .01 gas for an app call.
The initial 10 Gas during each execution of every smart contract is always fee, this includes smart contract deploying and invoking. So basically, if your fees form system calls and instructions is 10 gas or less, you won’t be charged a service fees.
An ICO contract costs 500 Gas, but where does that gas go? From the whitepaper, all smart contracts fees are considered as service fees to be put in a pool for re-distribution to NEO holders.
So we now know that GAS is the fuel token that helps power the NEO Network and hinder resource abuse, but for new NEO fans out there…how in the hell do you get GAS? NEO has two native token, NEO and NEOgas, NEO with a total of 100 million tokens, represents the rights to manage the network. In the genesis block of the NEO Network, 100 million NEOs were generated, and GAS had not yet been generated. 100 million NEOgas, corresponding to the 100 million NEO will be generated through a decay algorithm in about 22 years’ time.
NEOgas is generated with each new block. Each block takes about 15-20 seconds. Each year around 2 million blocks will be generated, and the initial generation will be 8 gas per block, distributed based on a person’s NEO holdings. There will be an annual reduction of 1 GAS per block per year. The reduction will continue down to just 1 GAS per block and will held at that rate until around 22 years time. After 44th millionth block the total NEOgas generated will have reached 100 million and from after this point no further generation of NEOgas from new blocks will occur.
With this release curve we can project that 16 million NEOgas will be generated after the 1st year of the genesis block, In the 2nd year their will be 14 million gas created, 3rd year 12 million, 4th year 10 miilion. This means that after the 4th year 52 percent of all gas will be generated, and 80 percent of the NEOgas will be created in the first 12 years. The remaining 20 percent will be created in the remaining 10 years. After 22 years or when the 44th millionth block is generated the total amount of GAS will cease by block generation. But that doesn’t mean NEO holders still won’t be receiving GAS, remember you also get NEOgas from the pool which is filled from service fees. These service fees are equally distributed to NEO holders. The NEO Council and even Da Hongfei himself have said that they could see the block time reduced to 5 seconds. Of course a quicker block time would mean the Gas would be generated faster.
This scarcity and fee distribution to token holders is one of the top reasons I believe Gas is severely undervalued. The ability to collect extra service charges with NEO is going to be worth boatload more than people realize. Already we are seeing the ecosystem grow, and as those projects begin initiating contracts, especially complex ones, they will have pay service fees. You need to understand how much volume will be on this platform and how much that is going to return holders in Gas. Even the whitepaper says it contracts are a digital asset.
Now some people argue that gas won’t become that scarce and used because ICOs can just accept NEO or Even BTC for their ICO. I beg to differ, BTC in its current form is not the best vehicle for participating in ICOS because of the network fees. Yes eventually this will get fixed, but NEO will be continuing to take market share in this time and market participants will realize NEOs benefits as more time goes on.
These benefit include
1. NEO of course produces GAS
2. Voting Rights
3. Quick Block Time, 15-20 seconds right now with 5 seconds possible
4. High transactions per second. Currently NEO can handle 1000 tx/s but by 2020 the network will be able to handle 100,000 on chain transactions per second.
5. Non forkable, which will lead to small/medium/ and large sized enterprises using NEO for blockchain solutions
NEO vs. NEOgas
Now why wouldn’t they just use NEO…well as we know NEO is rights to manage the network, and NEO is not divisible like GAS. Eventually the price of NEO will be 1000 dollars plus, most small investors will not be willing to invest a minimum of 1k and more in the further future. This alienates a potential group, so in my personal opinion of course ICOs will accept NEO, but the majority of contributions will come in the form of GAS.
If you didn’t know, the gas fees associated with smart contracts will change in the future. Yes, NEO holders will have voting rights in the future including network parameter changes. NEO is essentially giving power back to the people who participate in the network. How will us holders react to the changing markets, will we lower the entry for ICO smart contracts? It may even be possible we raise them. This is up to us to decide, and is the beauty of the smart economy. Da Hongfei himself explains smart contract fees in my interview with him at NEO Devcon, nevermind me telling you about it check it out right now.
Historical NEO vs. Gas
Now let’s take a look at some historical neogas prices when compared with NEO’s price. As you can see before NEO’s big runup to around 50 dollars usd NEO price was 7.29 and Gas’s price was 3.29. This means neo was trading at 3.1 times gas price. Once neo reached $50 USD Gas was trading at around 32.45. GAS had shrunk the NEO to Gas ration to 1.6. Right before the insane run up to 184.53 USD gas was trading at about 2:1 on 12/8/2017. When NEO had reached that 180 dollar level gas was trading at 85.68 leaving a ratio of 3.1. As of when this video was shot on 2/6/2018 NEO was trading at about 104 dollars USD and Gas is trading at 38.12. This means NEO is nearly trading at 3:1…..the last time we saw that was when NEO was less than 8 dollars. If this holds for when this video drops, GAS is a solid buy. Historically Gas has traded with NEO at 2:1
I am dedicated to NEO, their economic model is brilliant. Gas is just one of the reasons I love NEO, but in future videos your going to keep learning why this is the best crypto to be in. Hopefully I have gained some new recruits to the chico army after this video. If you would like to officially enlist, join my telegram group. t.me/chicocrypto Im out for today, cheers viewers and as always I’ll see you tomorrow.